Judgment

Mahajan J. -- The sole controversy in this appeal centres round the point as to whether or not excess profits tax is payable on the sum of Rs. 20,005 received by the respondent from Messrs Parakh & Co. by way of rent for the dyeing plant let out to them during the chargeable accounting period.

2. The respondent (Sri Lakshmi Silk Mills Ltd. is a manufacturer of silk cloth, and as a part of its business it installed a plant for dyeing silk yarn. During the chargeable accounting period (1-1-1943 to 31-12-1943) owing to difficulty in obtaining silk yarn on account of the war it could make no use of this plant and it remained idle for some time. On 20-8-1943 it was let out to Messrs E. Parakh & Co. on a rent of Rs. 4,001 per month. The Excess Profits Tax Officer by his assessment order dated 11-6-1945 included the sum of Rs. 20,005 realized as rent for five months, in the profits of the business of the respondent and held that excess profits tax was payable on this amount. This order was confirmed on appeal by the Appellate Assistant Commissioner and on further appeal by the Income-tax Tribunal. The Tribunal, however, on being asked referred the following question of law to the High Court for its opinion : "Whether in the circumstances of the case, the assessee s income of Rs. 20,005 is profits from business within the meaning of S. 2 (5), Excess Profits Tax Act and therefore or otherwise liable to pay excess profits tax?"

3. The High Court answered the question in the negative. This is an appeal by special leave from this decision.

4. It was contended on behalf of the Commissioner before the High Court that the dyeing plant was a commercial asset of the assesses s business for the purpose of earning profit and if this commercial asset yielded income to him in any particular manner, it was income from the assessee s business for the purpose of the Excess Profits Tax Act. It was said that it was immaterial whether a commercial asset yields income by use of the assessee himself or its being used by someone else. This contention was disposed of by the learned Chief Justice in these words : "Mr. Joshi seems to be right but with this qualification that the commercial asset Trust be at the time it was let out in a condition to be used as a commercial asset by the assessee. If it has ceased to be a commercial asset, if its use as a commercial asset has been discontinued, then if the assessee lets it out, he is not putting to use something which is a commercial asset at the time. Now, on the facts found by the Tribunal it is clear that when the assessee let out this dyeing plant, it had remained idle for some time. He could not obtain silk yarn on account of the war and therefore it was not possible to make use of it as a commercial asset as far as the assessee himself was concerned and it was only for that reason that he let it out to Messrs E. Parakh & Co. I can understand the principle for which Mr. Joshi is contending that it makes no difference what an assessee does with a commercial asset belonging to him. He may use it as he likes. So long as it yields income it is the income of his business. Various cases have been cited at the Bar and I think that those cases though apparently conflicting are reconcilable if we accept this principle to be the correct principle and apply this ratio as the ratio emerging from these cases and I will state the principle and the ratio again that if an assessee derives income from a commercial asset which is capable at the time of being used as a commercial Asset, then it is income from him business, whether he uses that commercial asset himself or lets it out to somebody else to be used. But if the commercial asset is not capable of being used as such, then its being let out does not result in an income which is the income of the business."

5. Mr. Justice Tendolkar concurred in this view and observed as follows : "The ratio of all these cases to my mind is that if there is a commercial asset whi